It is desirable for the euro to rise against the dollar, but the yen's strength does not reflect fundamentals

Harihiko Kuroda, vice finance minister for international affairs

There is widespread concern in Japan that economic stability could be threatened by falling prices and wages.

The central bank has already cut the cost of borrowing to 0%, and last Tuesday it went one step further and poured more yen into the Japanese economy.

But deflation is still continuing, and some politicians are now suggesting radical measures.

"Not ready"

One possibility would be a target for inflation, as a way of making it clear what the government and the Bank of Japan are working towards.

Heizo Takenaka, the economics minister, suggested as much on a TV programme over the weekend.

But he admitted the side effects meant his colleagues would need a great deal of persuasion.

"If we were to really push through this debate of inflation targeting, politicians would have to face up to a huge decision," Mr Takenaka said

"Is it alright if public utility charges rise? Salaries of public servants? I don't think politicians are confident enough to push through these changes, which would come hand in hand with such a policy."

Still, Mr Takenaka is not alone in advocating tougher action, as the Bank of Japan's executive director, Minoru Masubuchi, told the same Sunday talk show on the national TV channel NHK.

Japan is marred by a fear of deflation, that is falling wages and prices

"If a further loosening of monetary policy should become necessary, then a flexible approach would be needed to determine what measures can be taken," he said.

The suggestion of an inflation target, and hints of intervention, did little to encourage markets in Tokyo, where the pain among corporations showing heavy losses and planning severe job cuts continued to weigh on sentiment.

On Monday, the Nikkei 225 closed down 1.6% to 11,257.94: A new 17-year low.

Off holiday

And the urgency of official concern was underlined by the second intervention in less than a week by Japan's top financial diplomat.

Haruhiko Kuroda, the vice finance minister for international affairs, again broke his holiday to try to talk down the yen from its new-found strength against the US dollar.

"It is desirable for the euro to rise against the dollar, but the yen's strength does not reflect fundamentals," he said.

Japanese officials are worried that if the yen rises too far, too fast, that could snuff out any chance of a recovery by making Japanese firms' exports too expensive.

Mr Kuroda's renewed intervention was not enough to stem a further rise in the yen, up slightly on Friday's close at 120.35 yen to the US dollar.

Domestic demand remains very weak, with prices falling and consumers unwilling to spend.

Cash injection

Last week the central bank boosted money supply by buying government bonds.

This bolstered the country's troubled stock market on Tuesday as investors were caught unawares.

It seemed nobody had expected Tuesday's cash injection by the Bank of Japan, despite the widespread criticism against the bank for failing to do more to encourage lending.